BSP prepares capital market reforms

By Kathleen A. Martin, The Philippine Star

Posted at Feb 19 2014 12:14 PM | Updated as of Feb 19 2014 08:14 PM

MANILA, Philippines - Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said on Tuesday the central bank is working on reforms to deepen the country’s capital markets to attract more investments to support economic growth.

“Surely, going beyond investment grade itself would truly matter if it translates into real investments,” Tetangco said during the Philippines Investment Forum sponsored by Euromoney.

Tetangco said the financial sector remains bank-centric as the bulk or 80 percent of financial assets are held by banks.

To illustrate further, he noted some P84 billion in corporate securities were issued last year, while loans extended by banks went up by P663 billion.

This creates a mismatch such that short tenors do not match the long-term funding needs of corporations.

“Capital market reform is not the question of the dominance of one form to another. There are good reasons why we want to see more securities issued relative to loans,” Tetangco said.

“Having the right balance to bank credit and access to capital market is essential to managing systemic risks,” he continued.

Thus, the BSP is working toward the development of a benchmark yield curve, part of which is the overnight index swap for short-term yield curves and implied zero rates for medium to long term yield curves.

He further added the central bank is working on the oversight of repurchase market, and the introduction of strip bonds or zero-coupon bonds.

“We want more investments (but) we’re not saying that we don’t want consumption,” Tetangco said.

He stressed consumption remains a main driver of the country’s economic growth, which hit a faster-than-expected 7.2 percent last year.

“But we also like to look at sustainable growth in the medium to long term and there you’ll need investments like infrastructure and manufacturing,” Tetangco explained.

“We want to develop investments more, to increase the investment to GDP (gross domestic product) ratio to establish a more solid base for mid-to long- term. Capital markets will help because projects will require long-term funding,” he added.